Access bonds offer tax-free savings opportunities

Private Property South Africa

ooba •
May 13, 2014

Having an access bond is one of the smartest ways you can manage your home loan.

An access bond allows borrowers who have paid additional money into their bond, to withdraw the extra money should they need it. “Access bonds are useful for home owners in this way, because they allow them to pay any surplus funds they have into their home loan account, secure in the knowledge that if they need the funds, they can withdraw them again,” says Kay Geldenhuys, the manager of property finance processing at ooba, South Africa’s biggest bond originator.

This means that home owners can benefit from paying interest on a smaller capital amount while the surplus funds are in the bond, but can access the money if they need it. For example, if you had a R1 000 000 bond with a monthly repayment of R8 997 at an interest rate of 9%, and you paid in an extra R500 each month, the saving in interest charges would be R174 415 and the term of your bond would be shortened by two and a half years.

A smart way to invest your surplus money is to deposit it into your home loan account as you are, in effect, saving at the rate of interest of the loan without paying tax on the interest saved, which is almost certainly more than you’d be guaranteed anywhere else. “It makes more sense to keep your surplus money in an access bond where you are going to get the best return at no risk at all,” says Geldenhuys. “This is also an ideal way to accumulate tax-free savings.”

Another way of saving money is to deposit your salary into your access bond account and transfer sufficient funds into your current account to cover all your deductions like debit orders and your household expenses. Any surplus funds remaining from your salary will reduce the interest charges on your bond.

All banks offer access bonds. You can either have the facility incorporated into your home loan when your finance application is approved or you can apply for this facility after your bond has been registered. You can also apply to have a normal bond converted into an access bond at any stage during the term of your home loan, provided that your home loan has been well conducted and you are not under debt review.

“It’s important to understand that an access bond does not give you the ability to borrow all the money you have paid in – you can only withdraw the funds you have paid over and above the monthly instalment,” says Geldenhuys.

For instance, if your bond repayment is R8 000 and, for 10 months, you had paid R8 500 into the account every month, you would be entitled to withdraw R5 000 if you needed to. “If you wish to increase your access bond facility, the bank will be required to do a full risk assessment as required by law to ensure that you are not over-indebted.”

“An access bond is a wonderful way to manage your home loan repayments, while still keeping additional funds available if you need them,” says Geldenhuys. “Of course, you’ll realise the best benefits of interest savings and the satisfaction of paying off your bond sooner if you don’t withdraw the extra money you have paid in, but most people rest easy knowing that they can access their funds in an emergency.”